2012 iMac won't send correct signal to external drive

I just upgraded my iMac from the 2009 27" to the brand new one. I have an external monitor - HP w2207 which always worked just fine with the old iMac. The new one will only work if I send a 1920 x 1080 signal. I'm using a minidisplay to HDMI adapter plugged into the thunderbolt port. The problem is that the external is not 16:9, so at 1920 x 1080 everything is distorted. If I try and select 1680 x 1050, which matches the externals aspect ratio (and always worked with the 2009 iMac), the external goes black, then flashes the image every couple of seconds. The iMac knows it's plugged into it but it does not display correctly.

Does anyone have any idea if there's a way to use 1680 x 1050 with the new 27" iMac? It's quite frustrating that it worked just fine with the old one. I talked with apple care and they didn't have an answer. In fact, the first apple care rep told me you cannot plug any external monitors into the 27" iMac.